H&R Block Announces Fiscal 2019 First Quarter Results

KANSAS CITY, Mo., Aug. 28, 2018 (GLOBE NEWSWIRE) — H&R Block, Inc. (NYSE:) today released its financial results for the fiscal 2019 first quarter ended July 31, 2018.  The company normally reports a fiscal first quarter loss due to the seasonality of its tax business.  The fiscal first quarter typically represents less than 5 percent of annual revenues and less than 15 percent of annual expenses.

Fiscal First Quarter Highlights1

“We are hard at work on our strategic initiatives for fiscal 2019, which include delivering an improved value proposition for our clients and differentiating H&R Block as the best choice for consumers,” said Jeff Jones, H&R Block‘s president and chief executive officer.  “By investing in pricing, technology, and operational excellence, we are positioning the company to accomplish our goal of sustainably growing clients, revenue, and earnings.  We look forward to sharing more details on our progress throughout the year.”

Fiscal 2019 First Quarter Results From Continuing Operations

“Our fiscal first quarter results were in line with expectations and reflect the seasonality of our business, as well as investments related to the strategic initiatives we outlined in June,” said Tony Bowen, H&R Block‘s chief financial officer.  “We are on track to achieve our financial outlook for the fiscal year.”

(in millions, except EPS) Q1 FY2019 Q1 FY2018Revenue $145  $138 Pretax Loss $(199) $(205)Net Loss $(149) $(128)Weighted-Avg. Shares – Diluted 207.7  207.9 EPS2 $(0.72) $(0.62)EBITDA3 $(137) $(140)     

Key Financial Metrics

  • Total revenues increased $7.4 million, or 5.4 percent, to $145.2 million primarily due to the timing of revenues from the Peace of Mind® Extended Service Plan and Tax Identity Shield®, partially offset by lower revenues from Refund Transfer.
  • Total operating expenses increased $4.3 million, or 1.3 percent, to $327.3 million primarily due to increases in compensation and consulting expenses, partially offset by lower depreciation and amortization and bad debt expense.
  • Pretax loss improved $6.5 million, or 3.1 percent, to $198.8 million.
  • Loss per share from continuing operations increased $0.10, from $0.62 to $0.72, due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss.

Share Repurchases and Dividends

Discontinued Operations

For information on Sand Canyon, please refer to disclosures in the company’s reports on Forms 10-K, 10-Q, and other filings with the SEC.

Conference Call

Discussion of the fiscal 2019 first quarter results, future outlook, and a general business update will occur during the company’s previously announced fiscal first quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on August 28, 2018. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada or International
Conference ID: 8159739

The call, along with a presentation for viewing, will also be webcast in a listen-only format for the media and public. The link to the webcast can be accessed directly at http://investors.hrblock.  The presentation will be posted on the Webcasts and Presentations page at http://investors.hrblock following the conclusion of the call.

A replay of the call will be available beginning at 7:30 p.m. Eastern time on August 28, 2018, and continuing until September 28, 2018, by dialing (U.S./Canada) or (International). The conference ID is 8159739. The webcast will be available for replay beginning on August 29, 2018 and continuing for 90 days at http://investors.hrblock.

About H&R Block

H&R Block, Inc. (NYSE:) is a global consumer tax services provider. services are provided by professional tax preparers in approximately 12,000 company-owned and franchise worldwide, and through H&R Block for the DIY consumer. H&R Block also offers adjacent Tax Plus products and services. In fiscal 2018, H&R Block had annual revenues of over $3.1 billion with over 23 million tax returns prepared worldwide. For more information, visit the .

About Non-GAAP Financial Information

This press release and the accompanying tables include non-GAAP financial information. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, please see the section of the accompanying tables titled “Non-GAAP Financial Information.”

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “commits,” “seeks,” “estimates,” “projects,” “forecasts,” “targets,” “would,” “will,” “should,” “goal,” “could” or “may” or other similar expressions. Forward-looking statements provide management‘s current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management’s plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company‘s good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to a variety of economic, competitive and regulatory factors, many of which are beyond the company‘s control, that are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2018 in the section entitled “Risk Factors” and additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. You may get such filings for free at our website at . In addition, factors that may cause the company’s actual estimated effective tax rate to differ from estimates include the company’s actual results from operations compared to current estimates, future discrete items, changes in interpretations and assumptions the company has made, guidance from the Internal Revenue Service, SEC, or the Financial Accounting Standards Board about the Tax Legislation, and future actions of the company. You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

1 All amounts in this release are unaudited.  Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.
2 All per share amounts are based on fully diluted shares at the end of the corresponding period.
3 The company reports non-GAAP financial measures of performance, including earnings before interest, tax, depreciation, and amortization (EBITDA), EBITDA margin, and free cash flow, which it considers to be useful metrics for management and investors to evaluate and compare the ongoing operating performance of the company.  See “About Non-GAAP Financial Information” below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

For Further Information

Investor Relations: Colby Brown, , colby.brown
Media Relations: Susan Waldron, , susan.waldron

  CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited, in 000s –
except per share amounts)  Three months ended July 31,  2018 2017     REVENUES:    Service revenues $126,860  $124,695 Royalty, product and other revenues 18,323  13,107   145,183  137,802 OPERATING EXPENSES:    Costs of revenues 221,560  227,715 Selling, general and administrative 105,740  95,249 Total operating expenses 327,300  322,964      Other income (expense), net 4,542  1,220 Interest expense on borrowings (21,190) (21,277)Loss from continuing operations before income tax benefit (198,765) (205,219)Income tax benefit (49,968) (77,401)Net loss from continuing operations (148,797) (127,818)Net loss from discontinued operations (3,873) (2,749)NET LOSS $(152,670) $(130,567)     BASIC AND DILUTED LOSS PER SHARE:    Continuing operations $(0.72) $(0.62)Discontinued operations (0.02) (0.01)Consolidated $(0.74) $(0.63)     WEIGHTED AVERAGE BASIC AND DILUTED SHARES 207,673  207,935           

   CONSOLIDATED BALANCE SHEETS (unaudited, in 000s – except per share data)As of July 31, 2018 July 31, 2017 April 30, 2018       ASSETS      Cash and cash equivalents $979,116  $551,566  $1,544,944 Cash and cash equivalents – restricted 131,376  116,594  118,734 Receivables, net 70,576  91,004  146,774 Income taxes receivable 15,776  —  12,310 Prepaid expenses and other current assets 85,279  74,776  68,951 Total current assets 1,282,123  833,940  1,891,713 Property and equipment, net 227,003  253,255  231,888 Intangible assets, net 354,831  393,972  373,981 Goodwill 507,941  493,991  507,871 Deferred tax assets and income taxes receivable 131,683  54,348  34,095 Other noncurrent assets 101,457  102,742  101,401 Total assets $2,605,038  $2,132,248  $3,140,949 LIABILITIES AND STOCKHOLDERS’ EQUITY      LIABILITIES:      Accounts payable and accrued expenses $145,471  $161,751  $251,975 Accrued salaries, wages and payroll taxes 37,468  35,063  141,499 Accrued income taxes and reserves for uncertain tax positions 178,313  176,909  263,050 Current portion of long-term debt 1,038  992  1,026 Deferred revenue and other current liabilities 201,706  187,791  186,101 Total current liabilities 563,996  562,506  843,651 Long-term debt 1,495,006  1,493,422  1,494,609 Deferred tax liabilities and reserves for uncertain tax positions 231,292  159,233  229,430 Deferred revenue and other noncurrent liabilities 122,735  131,415  179,548 Total liabilities 2,413,029  2,346,576  2,747,238 COMMITMENTS AND CONTINGENCIES      STOCKHOLDERS’ EQUITY:      Common stock, no par, stated value $.01 per share 2,420  2,462  2,462 Additional paid-in capital 752,109  746,761  760,250 Accumulated other comprehensive loss (16,034) (12,837) (14,303)Retained earnings (deficit) 163,567  (229,647) 362,980 Less treasury shares, at cost (710,053) (721,067) (717,678)Total stockholders‘ equity (deficiency) 192,009  (214,328) 393,711 Total liabilities and stockholders‘ equity $2,605,038  $2,132,248  $3,140,949               

   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)Three months ended July 31, 2018 2017CASH FLOWS FROM OPERATING ACTIVITIES:    Net loss $(152,670) $(130,567)Adjustments to reconcile net loss to net cash used in operating activities:    Depreciation and amortization 40,432  43,598 Provision for bad debt 1,617  2,459 Deferred taxes 9,595  20,796 Stock-based compensation 4,359  4,816 Changes in assets and liabilities, net of acquisitions:    Receivables 66,960  64,985 Prepaid expenses and other current assets (16,191) (8,695)Other noncurrent assets 3,272  5,499 Accounts payable and accrued expenses (99,658) (66,729)Accrued salaries, wages and payroll taxes (103,824) (149,441)Deferred revenue and other current liabilities (782) 464 Deferred revenue and other noncurrent liabilities (39,978) (32,510)Income tax receivables, accrued income taxes and income tax reserves (89,661) (149,542)Other, net 966  (14,248)Net cash used in operating activities (375,563) (409,115)     CASH FLOWS FROM INVESTING ACTIVITIES:    Capital expenditures (12,057) (13,094)Payments made for business acquisitions, net of cash acquired (1,449) (1,440)Franchise loans funded (1,805) (4,527)Payments received on franchise loans 5,104  4,727 Other, net 3,645  1,371 Net cash used in investing activities (6,562) (12,963)     CASH FLOWS FROM FINANCING ACTIVITIES:    Dividends paid (52,104) (49,905)Repurchase of common stock, including shares surrendered (101,665) (7,508)Proceeds from exercise of stock options 1,355  27,418 Other, net (17,494) 2,545 Net cash used in financing activities (169,908) (27,450)     Effects of exchange rate changes on cash (1,153) 149      Net decrease in cash, cash equivalents and restricted cash (553,186) (449,379)Cash, cash equivalents and restricted cash, beginning of period 1,663,678  1,117,539 Cash, cash equivalents and restricted cash, end of period $1,110,492  $668,160      SUPPLEMENTARY CASH FLOW DATA:    Income taxes paid, net of refunds received $31,969  $57,901 Interest paid on borrowings 15,519  15,519 Accrued additions to property and equipment 9,974  4,757           

   FINANCIAL RESULTS (unaudited, in 000s – except per share amounts)  Three months ended July 31,  2018 2017REVENUES:    U.S. assisted tax preparation fees $31,104  $29,963 U.S. royalties 7,571  6,967 U.S. DIY tax preparation fees 2,781  3,226 International revenues 39,179  40,417 Revenues from Refund Transfers 1,424  2,816 Revenues from Emerald Card® 14,246  14,987 Revenues from Peace of Mind® Extended Service Plan 36,577  31,943 Revenues from Tax Identity Shield® 4,741  254 Interest and fee income on Emerald Advance 447  664 Other 7,113  6,565   145,183  137,802 Compensation and benefits:    Field wages 49,932  48,123 Other wages 47,822  43,197 Benefits and other compensation 22,931  20,645   120,685  111,965 Occupancy and equipment 90,726  90,291 Marketing and advertising 6,894  7,104 Depreciation and amortization 40,432  43,598 Bad debt (858) 2,459 Supplies 2,204  2,734 Other 67,217  64,813 Total operating expenses 327,300  322,964      Other income (expense), net 4,542  1,220 Interest expense on borrowings (21,190) (21,277)Pretax loss (198,765) (205,219)Income tax benefit (49,968) (77,401)Net loss from continuing operations (148,797) (127,818)Net loss from discontinued operations (3,873) (2,749)NET LOSS $(152,670) $(130,567)     BASIC AND DILUTED LOSS PER SHARE:    Continuing operations $(0.72) $(0.62)Discontinued operations (0.02) (0.01)Consolidated $(0.74) $(0.63)     Weighted average basic and diluted shares 207,673  207,935      EBITDA from continuing operations (1) $(137,143) $(140,344)     (1) See “Non-GAAP Financial Information” for a reconciliation of non-GAAP measures.
     

     Three months ended July 31,NON-GAAP FINANCIAL MEASURE – EBITDA 2018 2017     Net loss – as reported $(152,670) $(130,567)Discontinued operations, net 3,873  2,749 Net loss from continuing operations – as reported (148,797) (127,818)Add back:    Income taxes of continuing operations (49,968) (77,401)Interest expense of continuing operations 21,190  21,277 Depreciation and amortization of continuing operations 40,432  43,598   11,654  (12,526)     EBITDA from continuing operations $(137,143) $(140,344)                 Three months ended July 31,Supplemental Information 2018 2017     Stock-based compensation expense:    Pretax $4,359  $4,816 After-tax 3,274  3,123 Amortization of intangible assets:    Pretax $18,139  $19,235 After-tax 13,622  12,472       

NON-GAAP FINANCIAL INFORMATION

The accompanying press release contains non-GAAP financial measures.  Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.

We consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business.

We may consider whether significant items that arise in the future should be excluded from our non-GAAP financial measures.

We measure the performance of our business using a variety of metrics, including EBITDA from continuing operations, EBITDA margin, and free cash flow. We also use EBITDA from continuing operations and pretax income from continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.